Creating a Roth IRA can make a big difference in your retirement savings. There is no tax deduction for contributions made to a Roth IRA, however all future earnings are sheltered from taxes. The Roth IRA provides truly tax-free growth.
Contributing to a Traditional IRA can create a current tax deduction, plus it provides for tax deferred growth. While long term savings in a Roth IRA may produce better after tax returns, a Traditional IRA may be an excellent alternative if you qualify for the tax deduction.
|Year||IRA contribution limit|
|2008 and after*||$5,000|
*Beginning in 2009, the contribution limit will adjust annually for inflation in $500 increments
In 2006, if you are 50 or older, you can make an additional â€œcatch-upâ€ contribution of $1000. This is an increase of $500 over the 2005 â€œcatch-upâ€ contribution. In order to qualify for the â€œcatch-upâ€ contribution, you must turn 50 by the end of the year in which you are making the contribution.
It is important to note that Roth IRA contributions are limited for higher incomes. If your income falls in a â€œphase-outâ€ range you are allowed only a prorated Roth IRA contribution. If your income exceeds the phase-out range, you do not qualify for any Roth IRA contribution. For the purposes of this calculator, we assume that your income does not limit your ability to contribute to a Roth IRA. The table below summarizes the income â€œphase-outâ€ ranges for Roth IRAs.
|Tax filing status||Income Phase-Out Range|
|Married filing jointly or Head of household||$150,000 to $160,000|
|Single||$95,000 to $110,000|
|Married filing separately||$0 to $10,000|
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We can not and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.